Rightly so, there is a lot of focus on the $700 billion bailout for bankers (which as we know is now in disarray, causing stock futures to go lower in overnight markets overseas). But, what I’ve been saying here for some time, and I say when I talk to colleagues and friends, is that the mortgage crisis is just the tip of the iceberg. Part of that iceberg just got exposed this morning in the banking sector, as reported in The Wall Street Journal:

In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to J.P. Morgan Chase & Co.

Associated Press

Pedestrians walk past a Washington Mutual branch in downtown Seattle.

The collapse of the Seattle thrift, which was triggered by a wave of deposit withdrawals, marks a new low point in the country’s financial crisis. But the deal, as constructed by the Federal Deposit Insurance Corp., could hold some glimmers of hope for the beleaguered banking system because it averts any hit to the bank-insurance fund.

   Now, if you believe the rap above that the deal offers "hope", then, you also believe in the tooth fairy. Remember, all these experts, like the Treasury Secretary, kept telling us: don’t worry, we’ve gotten over the crisis because we just did X…and that was only operative until the next failure and collapse.

   Here is the problem:

   The entire financial system is rotting underneath and no one really knows how bad it is. Banks are starting to see the bad assets they have–which is why they are not lending and credit is freezing up. Everyone wants to hoard cash. Very bad.

   Add this thought: the holiday season beakons just down the road. I will wager that at least 1 or 2 major retailers will fail after the holidays because they can’t get access to credit to cover what will be a very bad holiday season. Why bad? Know anyone who has a lot of extra cash around who will spend large this year? How many people do you know who have entirely maxed out credit cards and whose home equity credit lines are done?

   There still doesn’t appear to be a realization that to solve this we need:

1. A willingness to attack market fundamentalism at its core and obliterate it.

2. A massive tax increase on the richest Americans to recoup some of the public investment money we need.

3. After we do #2, we basically say, "the government will employ any person who can’t find a job, at a living wage, as part of a massive infrastructure plan we are now launching…and to let the "free market" freaks who are left try to stop us".

4. Mass unionization to make sure people have real incomes.